The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts

The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts
by Asher Rubinstein, Esq.

As we’ve reported below , in an extraordinary act that belied generations of Swiss banking secrecy, UBS earlier this year revealed to the IRS the identities of approximately 350 Americans with non-compliant offshore accounts. UBS did this as part of a settlement with the Justice Department, which allowed UBS to avoid criminal indictment for aiding, abetting and encouraging tax fraud. A civil case against UBS in federal court in Miami is still pending. In the civil case, the IRS is seeking the identities of 52,000 Americans with allegedly non-declared UBS accounts.

The disclosure of the 350 names has led to two tax fraud prosecutions thus far, and both prosecutions have resulted in guilty pleas. On June 25, 2009, Steven Michael Rubinstein (no relation to us), pled guilty to filing a false tax return. He kept funds at UBS and in Monaco, in the name of an entity established with UBS assistance in the British Virgin Islands. He faces a prison sentence of three years, and millions of dollars in fines and penalties. In April, Robert Moran pled guilty to concealing more than $3 million at a UBS account. Moran faces a similar sentence.

Americans with non-compliant foreign accounts, whether at UBS or elsewhere, must understand the impact of recent events: offshore bank secrecy is dying, if not already dead. Last week, Switzerland agreed to a new exchange of information agreement with the U.S. ; Liechtenstein and other offshore banking jurisdictions have already signed such agreements. UBS is on the ropes in federal court in Miami and will likely be forced to give the IRS 52,000 names. HSBC and Credit Suisse are also being investigated, and we can expect a legal offensive against them and other banks. Domestically, prominent Senators and the President have introduced anti-tax haven legislation with severe penalties for non-compliance. The OECD campaign against tax havens is running alongside the IRS campaign, and has resulted in announcements of financial transparency from every significant offshore jurisdiction.

This is truly a “perfect storm” against offshore bank secrecy, with significant consequences for Americans with un-declared offshore funds. Guilty pleas by UBS account holders will be followed by more prosecutions and more guilty pleas.

Against this background, the IRS’s Foreign Account Voluntary Disclosure Program offers a form of amnesty and should be considered by American taxpayers with foreign accounts. The program does not apply to taxpayers once the IRS already knows about their foreign accounts, and the Voluntary Disclosure Program will expire in less than three months. Americans with offshore accounts should meet with us now regarding Voluntary Disclosure, before the IRS discovers the accounts. Within the “perfect storm” of the current anti-tax haven crackdown, discovery by the IRS is likely, in which case it will be too late to take advantage of amnesty.